Wells Fargo hit with a brutal 100-page notice as regulators finally crack down on the 'lawless' bank

[catbyte]

Note: This is a rare original Raw Story column.


By Phil Mattera, DC Report @ Raw Story - Commentary
Published 22 mins ago on February 5, 2020

It took three years but a leading U.S. regulator finally got tough with probably the most lawless large U.S. financial institution.

The Office of the Comptroller of the Currency, an arm of the Treasury Department, recently took action against a former chief executive of Wells Fargo. The action was in connection with the scandal in which the bank pressured employees to create bogus accounts to extract millions in fees from unsuspecting customers.

Many observers were surprised. The OCC, not known for aggressive action, fined John Stumpf $17.5 million. That’s the largest penalty it has ever imposed on an individual. And, the regulator banned Stumpf for life from the banking industry.

The agency also penalized two other former senior officials at Wells and charged five others. Among them is Carrie Tolstedt, the former head of retail banking. The OCC is seeking a penalty of $25 million for Tolstedt, $7.5 million more than Stumpf.

snip

https://www.rawstory.com/2020/02/wells-fargo-hit-with-a-brutal-100-page-notice-as-regulators-finally-crack-down-on-the-lawless-bank/

[Sherman A1]

1. K&R

[Cirque du So-What]

2. About time

Wells Fucko gets its comeuppance.

[uponit7771]

3. Good !!! They're charging individuals and hitting their pockets

[mr_lebowski]

4. So they conspired and stole millions of $$$ from 1000's of people ... and they get a fine and ban

from working in their field again.

But no jail.

Must be nice.

[crickets]

6. +1

[Sgent]

7. To my understanding

Wells didn't actually steal any money. They just opened a lot of fake accounts that nobody asked for, thereby gaining themselves bonuses.

[mr_lebowski]

8. I'm not going to argue based on knowledge, but on speculation, to be clear ...

But why would the company hand out bonuses JUST for opening accounts that involved $0 fees?

Seems like they would only do so for accounts that have some sort of 'guaranteed income' from them.

And if no customers were ever charged any money for these accounts, cause they're fake, seems like the whole thing wouldn't have become the big ta-do that it become.

Again, I could be wrong but it SEEMS like money must've been made by the bank somehow in this scenario, at the expense of customers.

[Midnightwalk]

12. It's complicated

I’ve been reading up on it today. The problem isn’t the fees which amounted to a few million dollars. This is what I’ve gleaned.

Apparently some accounting geniuses figured out that people with multiple accounts were more likely to do more business with the bank and generated more bank profit. See exhibit 2
[link:|]

So in a classic case of mistaking cause and effect they decided to incentivize that. (My opinion)

Based on the operating principle just mentioned, the Bank (and the other financial services operations that were held by WFC) was infused with a sales culture that vigorously promoted the cross-selling of services. Opening of new customer accounts was rigorously tracked by Wells Fargo’s operating systems; success was rewarded with bonuses; lack of success with “enhanced training” or termination.

At the same time as they demanded results they pushed authority down the management chain

The Bank’s decentralized structure gave the head of the Community Bank near unlimited discretion in establishing sales goals, and management at all levels were remorseless and relentless in pursuit of these goals

(duke)
[link:https://sites.duke.edu/thefinregblog/2017/04/26/phony-accounts-scandal-a-case-study-for-bank-board-directors/|]

Warning signs appeared but ignored. Then there was there was a story by the LA Times in 2013

To meet quotas, employees have opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged client signatures on paperwork. Some employees begged family members to open ghost accounts.

[link:https://www.google.com/amp/s/www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html%3f_amp=true|]

Then in 2015 they were sued

In May of 2015, the Los Angeles City Attorney filed a lawsuit against Wells Fargo based on the Bank’s alleged fraudulent and abusive sales practices.

(duke link)

(Snip)
But somehow the scope of the problem was never presented to the board.

An early draft of the presentation – which was never delivered to the Committee – disclosed that approximately 1% of employees in the Community Bank had been terminated for sales integrity violations in 2013 and 2014. After the Community Bank’s management questioned the validity of this number, it was removed from the final presentation that was delivered to the Risk Committee. Instead, during the May 2015 Risk Committee meeting, the head of the Community Bank informed the committee that in 2013 and 2014 combined, 230 employees had been terminated for sales abuses

(duke link)

Senior management wanted great sales figures. They set up a system where they demanded unobtainable results and didn’t care how that was achieved.

One might ask why that is so bad. 2008 wasn’t that long ago. Liar loans were a big part of that. Also triggered by unrealistic sales targets and free wheeling subordinates. The fact that in 2015 the board still didn’t demand and get an honest accounting says to me they didn’t want to know.

One might blow this off as a stupid scandal, but it wasn’t for the perpetrators. They all had millions in stock options and the fraudulent growth of retail banking drove up stock prices which made them filthier rich.

The perpetrators also got raises, promotions and more stock options on the back of those fraudulent accounts.

I posted a reply below. Even after clawbacks and fines the two people in the article made out fine.

Sorry for the ramble. Reading was interesting.

[mr_lebowski]

13. No need to apologize mate, nice work!

I was curious in fact and you did the leg work, so ... thanks!

[Midnightwalk]

5. The fines are tiny and no jail time

What? you say. 25 million and 17 million are tiny?

Former Wells Fargo chief executive John Stumpf has captured $54.9 million in gains by exercising Wells Fargo stock options, the bank stated Wednesday in a regulatory filing.

[link:https://www.mercurynews.com/2017/03/15/wells-fargo-ex-ceo-gained-29-million-from-stock-sales-amid-scandal|

Oh there were clawbacks, for the years 2013-16. But the real story is how much they made. One still cleared 15M. The other took home 36M but forfeited stock options.

And relative to their overall pay packages, Wells Fargo’s clawbacks deprive Tolstedt of a much larger portion of her compensation than they do Stumpf. The former CEO is losing $69 million, or 85%, out of the $81 million he made between 2013 and 2016. Tolstedt, meanwhile, is giving up $67 million—or almost twice the $36 million she took home over the same period. (Tolstedt’s latest round of clawbacks involved stock options that were not counted in her annual compensation from previous years because she never exercised them; rather than having to pay back Wells Fargo out of her own pocket, she will simply not receive that compensation.)

I am sure they didn’t start making over 10M a year in 2013. Doesn’t sound like that got touched.

They still got compensation more than double what the fines are.

Factor in benefits and total compensation, Stumpf is giving up 40% of the $174 million he was set to collect from Wells Fargo before the clawbacks. Tolstedt, on the other hand, is losing 54% of the $125 million pay package she was originally entitled to when she retired.

[link:https://fortune.com/2017/04/10/wells-fargo-carrie-tolstedt-clawback-net-worth-fortune-mpw|]

[stopdiggin]

9. still. these are substantial penalties

levied against individuals .. and not, as is more typical, institutions and so failing to impact either the organization or actual malefactors .. by a regulator that, as the posts points out, has hardly been noted for enforcement in the past. I think you have to go for "credit where credit is due" here .. and offer what encouragement we can for more robust regulations and enforcement going forward.

[Midnightwalk]

10. Agree slightly

I agree the regulator deserves credit for going further than ever.

But that’s a sad commentary on how biased the system is for rich people.

They are keeping huge fortunes after committing huge frauds.

It’s like playing high stakes poker, but without the risk of losing. They got caught and fined but that just means they don’t win as much as they would have.

They should have done time. That’s more valuable than money and what ordinary criminals face. That’s the only deterrent that would work.

[stopdiggin]

11. oh, don't misunderstand

I'm totally with you on larger penalties (including possible incarceration).

Isn't interesting how we don't have any trouble confiscating some low level mope's car or house ...?